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Tesla's (TSLA) Unintended Acceleration Problem

Sejuti Banerjea

Tesla TSLA shares have been soaring as successive quarters of meeting or almost-meeting set production targets and positive cash flow generation have increased confidence that the company is a viable investment. So, between Oct 15, 2019 and Jan 15, 2020, Tesla shares have accelerated 101.1% compared to a net increase of just 10.0% for the S&P 500.

But on the heels of this enthusiasm comes concerns about inherent flaws in its cars, most notably the Tesla Model S from 2012 through 2019, Tesla Model X from 2016 through 2019 and Tesla Model 3 from 2018 through 2019.

Users have therefore filed a petition with the National Highway Traffic Safety Administration (NHTSA) that the agency is currently reviewing. The petition says that these Tesla models have led to "127 consumer complaints to NHTSA involving 123 unique vehicles. The reports include 110 crashes and 52 injuries."

The primary reason for the petition was uncommanded acceleration. Different drivers experienced the problem in different ways. One driver said the car moved into a chain-linked fence near an elementary school as he was trying to pull into a parking lot; another said the car moved through closed garage doors, destroying them; a third referred to a parked car that suddenly jumped forward toward the street, crashing into another car, all of which sound rather dangerous. The petition, filed last week, asks the agency to investigate and recall 500,000 Teslas, a pretty big number.

And that isn’t all. A group of eight users have now employed a California law firm called McCune Wright Arevalo, LLP (MWA) specializing in defective products to sue the company over their Teslas that they claim experienced sudden uncommanded acceleration (SUA).

Tesla has largely avoided comment on the issue other than to say that its cars weren’t defective and didn’t act without direction. It hasn’t however made technical details public. The company has also said that the system does at times override user direction when it appears that the direction was unintended, but the cases highlighted only talked about making the car stop and not accelerate.

Tesla’s growth promise makes it a continued Buy (the shares carry a Zacks Rank #2). But the unintended acceleration problem with the potential for significant product recall combined with the acceleration in its share prices, increase risks at this point. So it’s probably better to go for Zacks Rank #1 (Strong Buy) stocks instead like Arcosa, Inc. ACA, Builders FirstSource, Inc. BLDR, Delta Air Lines, Inc. DAL and Alexion Pharmaceuticals, Inc. ALXN.

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